These are cross-appeals*fn1 from an order of the Commonwealth Court declaring section 2 of Act 31 of 1983 to be unconstitutional as an impairment of contract in violation of Article I, section 17 of the Pennsylvania Constitution, 472 A.2d 749.*fn2 The order of the Commonwealth Court permanently enjoined the enforcement of Act 31 insofar as it increased the "basic contribution rate" under the Public School Employees' Retirement Code, 24 Pa.C.S. § 8101 et seq., ("Code") for employees who were members of the Public School Employees' Retirement System ("PSERS") prior to the effective date of the Act from five and one-quarter percent (5 1/4%) to six and one-quarter percent (6 1/4%). The Commonwealth Court further required that the additional monies collected from such employees pursuant to

[ 506 Pa. Page 199]

the increase be refunded immediately with interest at the statutory rate of four percent (4%).

The constitutional issue raised in this case is identical to the issue recently decided by this Court in Association of State College and University Faculties v. State System of Higher Education, 505 Pa. 369, 479 A.2d 962 (1984). In that case we held section 7 of Act 31 to be an unconstitutional impairment of the state's obligation of contract since it unilaterally devalued the retirement benefits of employees who were members of the State Employees' Retirement Fund at the time Act 31 was signed. Although Association of State College and University Faculties, supra, involved section 7 of Act 31, which applies to the State Employees' Retirement System, its rationale is controlling in the instant appeal. We therefore hold that the increased contribution rate prescribed in section 2 of Act 31 cannot constitutionally be imposed on employees who were members of PSERS prior to the effective date of the Act.

In so holding, we reject three additional questions raised in this case. The first issue, raised by the Commonwealth, is that there is no privity of contract between the Commonwealth and the teachers, and therefore Act 31 does not represent a unilateral modification of a contract in violation of Article I, section 17. This claim is based on the theory that local school districts are not a part of the state but are instead independent employers.

The Commonwealth's contention must be rejected. It is well established that the local school districts are merely agents of the Commonwealth to which the legislature has delegated authority in order to fulfill the state's responsibility to provide public education. Chartiers Valley Joint Schools v. Allegheny County Board of School Directors, 418 Pa. 520, 211 A.2d 487 (1965); Barth v. Philadelphia School District, 393 Pa. 557, 143 A.2d 909 (1958); Slippery Rock Area Joint School System v. Franklin Township School District, 389 Pa. 435, 133 A.2d 848 (1957); Wilson v. Philadelphia School District, 328 Pa. 225, 195 A. 90 (1937);

[ 506 Pa. Page 200]

In the definitional section, 24 Pa.C.S. § 8102, the Code defines the statutory interest rate to be "[i]nterest at 4% per annum, compounded annually." The employee-member is entitled only to this four percent (4%) on his contributions.

Under the Code a member is entitled upon retirement to the "accumulated deductions" in the member's savings account. 24 Pa.C.S. § 8102. "Accumulated deductions" include the member's contributions at the "basic contribution rate" plus those made by the employer on behalf of the member and the "statutory interest" credited. Since the statutory interest rate determines the amount credited to the member for his contributions, it is reasonable to use that rate for the interest used here.

Moreover, there is no justification for requiring any additional interest to be assessed. Legislative enactments are presumed to be constitutionally valid. Martin v. Unemployment Compensation Board of Review, 502 Pa. 282, 466 A.2d 107 (1983), cert. denied, U.S. , 104 S.Ct. 2156, 80 L.Ed.2d 541 (1984); National Wood Preservers, Inc. v. Commonwealth, 489 Pa. 221, 414 A.2d 37, appeal dismissed, 449 U.S. 803, 101 S.Ct. 47, 66 L.Ed.2d 7 (1980); Glancey v. Casey, 447 Pa. 77, 288 A.2d 812 (1972); Prichard v. School District of Willistown Township, Chester County, 394 Pa. 489, 147 A.2d 380 (1959). Statutes must be followed unless a court of competent jurisdiction finds them to be unconstitutional. PSERS, in assessing the increased contributions was merely following the law as established by Act 31. To require PSERS to pay any interest over the statutory four percent (4%) normally credited to members accounts would be to exact a penalty on PSERS for following the presumptively valid act of the legislature.

Finally, PSEA seeks a refund of contributions made by employees who became members of PSERS after the effective date of Act 31. PSEA claims that the inclusion of a non-severability clause which renders sections 2, 3 and 4 of the ...

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